A common concern for people nearing retirement is not having enough savings. A smart way to ease those fears is to eliminate debt before retiring. No debt translates into more savings and mental relief.

This observation was sparked by new research suggesting more households near retirement and in retirement are carrying debt. The Employee Benefits Research Institute — a Washington, D.C.,-based think tank — reports that for households with heads 55 years and older, 53.8 percent carried debt in 1992. That figure increased to 68 percent by 2016. The good news is median debt levels were down from a peak of $61,219 in 2010 to $47,800 in 2016.

Still, in conversations over the years I’ve been repeatedly told by retirees how liberated they felt living debt free (and vice versa). Eliminating debt lowers household risk during the inevitable downturns in the economy and markets. Not having debt makes it easier to choose the combination of work, volunteering and leisure people they would like to pursue. To be sure, for very wealthy families borrowing in the elder years can be a financially strategic decision. But for most older adults, to paraphrase an old saying, freedom is a low overhead.

If you own your home rather than your lender, the equity in your house becomes a critical part of the household safety net. You can always tap into the equity by downsizing into a smaller home, a rental apartment or continuing care community. You also have the option of tapping into the equity with a reverse mortgage.

A reverse mortgage is a home loan that converts a portion of the equity in your home into cash for homeowners 62 years and older. The loan amount depends on a combination of age, interest rates and home value. The lender gets the principal back with interest when the owner or heirs sell the house (often after the owner dies). I’m not a big fan of reverse mortgages. The product is complicated and older homeowners should approach it warily. Nevertheless, it’s good that the option exists.

Of course, it’s easy to add debt and hard to get rid of it. The process is straightforward. Figure out how much you really owe; make debt reduction a priority; create a budget; and put the extra money toward paying down your debts. The effort is worth it. A theme of these columns is that you can’t get rid of uncertainty, especially when it comes to the business cycle, the markets, and the like. But you can decide to get rid of your debts, a decision that hikes the odds of improving your financial security during the retirement years.


Chris Farrell is senior economics contributor, “Marketplace,” commentator, Minnesota Public Radio.